Asian marts jolted by Japan election shock

Asian marts jolted by Japan election shock

SINGAPORE (Reuters): Most Asian markets fell yesterday after a stunning election setback for Japan's ruling party, although Tokyo recovered in late trade as hope grew that the rebuke delivered by voters would spur faster reform.

Regional markets had taken fright on worries the election drubbing for Japan's ruling Liberal Democratic Party at the weekend, which prompted the resignation yesterday of Prime Minister Ryutaro Hashimoto, would derail Japan's economic reform plans and prolong the regional crisis.

But in Tokyo stocks and the yen recovered from big morning falls in late trade as the market spotted a silver lining.

The benchmark Nikkei 225 stock average closed up 270.33 points, or 1.68 percent, at 16,360.39, bouncing back from an early morning drop of nearly 2 percent.

The yen recovered to 142.47 against the dollar after earlier sinking by about three yen to 144.50.

The rest of the region, however, was not as confident.

Hong Kong's Hang Seng index fell below the 8,000-point level for the first time since mid-June with all eyes glued on the situation in Japan, before clawing back some ground by the close.

Shares in Australia, Korea, Malaysia and Thailand suffered sharp falls and Singapore stocks crumbled by more than 3 percent. Regional currencies were more stable, however.

The pan-regional slide came after Hashimoto's LDP was humiliated in Sunday's Upper House election. The party captured only 44 seats, many fewer than the 61 it had counted on.

Hashimoto announced yesterday afternoon that he intended to resign to take responsibility for his party's election setback.

The party's election disaster weighed on Asia by jeopardizing Japan's economic recovery, seen as necessary to nurse Asia's bruised economies back to health.

In doubt is the future of a pair of key policy initiatives -- a "bridge bank" scheme to help the economy work off at least 77 trillion yen ($542 billion) in debt and proposed permanent income tax cuts -- seen as key steps to a Japanese recovery.

As the search began to find a replacement for Hashimoto, analysts stressed the importance to markets of a swift return to political stability.

But optimists, who eventually won the day on Tokyo markets, were not hard to find, believing the poll shock would at last inject some urgency into economic recovery plans.

Hong Kong's Hang Seng index fell 1.30 percent to record its lowest close since mid-June -- 8,099.20.

Singapore shares were also hit hard. The benchmark Straits Times Industrials Index closed down about 38 points, or 3.41 percent, at 1,053.19.

In neighboring Malaysia, the KLSE index ended down 7.31 points, or 1.71 percent at 421.31.

South Korean stocks fell amid worries a weaker yen would make it harder for the country's big blue chips to export against Japanese companies. Worries about labor unrest continued to dog the market.

The Seoul exchange's main index was down 3.60 points, or 1.18 percent, to 301.37 by the close.

Taiwanese shares gave up 67.63 points, or 0.86 percent, to close at 7,815.53.

Thai stocks finished down 7.51 points, or 2.74 percent, at 267.21. Banks and finance companies, many of which have borrowed heavily from Japan, led the decline amid expectations they would announce poor second-quarter results.

In the Philippines, the PHS Composite fell 26.36 points, or 1.46 percent, 1,775.85.

Indonesian shares fell 3.9 points, or 0.84 percent, to end the day at 459.673.

Australia's All Ordinaries index also finished lower as Japan's political problems weighed on sentiment. It closed 1.1 percent down at 2,718.6.